Financial literacy key amid growth of ‘buy now, pay later’ schemes

 

Some 44% of buy-now-pay-later users are between 18 and 30 years of age, with more than 80% drawing a monthly income of less than RM3,000, according to Bank Negara. (Bernama pic)

PETALING JAYA: The financial literacy of our youth must be upped amid the explosion of “buy now, pay later” (BNPL) schemes covering an increasingly wide array of consumer goods and services, a financial analyst and a consumer group said.

BNPL schemes are no longer exclusively for large purchases, such as cars, home appliances and even furniture.

Now, consumers can put off paying for a wide range of items, from a fancy night out to the latest must-have gadgets.

Financial planner Kelvin Goh said education campaigns should target groups with limited financial literacy, especially young people entering the job market.

“These campaigns could be introduced at university level and be (made) mandatory, because students are just a few years away from entering the workforce and should be prepared to shoulder financial responsibilities,” he told FMT.

Goh warned that young consumers are especially vulnerable to BNPL schemes because they promote impulse buying and a sense of instant gratification, making it difficult for them to put money away to achieve longer-term financial goals.

“Youngsters need to learn the importance of saving money, rather than turning to loans for major purchases. If you find yourself needing to use instalments to buy an item, it just means that you cannot afford it now,” he said.

Bank Negara Malaysia’s (BNM) financial stability review for the second half of 2022 reported that 44% of BNPL users were between 18 and 30 years of age, with more than 80% drawing a monthly income of less than RM3,000, making them more susceptible to financial stress.

In addition, BNM noted that the share of BNPL users with overdue payments in Q4 FY2022 has risen to 17%, compared to 7% in Q4 FY2021.

BNPL in Malaysia is expected to record a compound annual new user growth rate of 35.4% between 2022 and 2028, while the gross merchandise value will rise from US$625 million (RM2.66 billion) in 2021 to reach US$6.89 billion (RM29.4 billion) by 2028.

Federation of Malaysian Consumers Associations (Fomca) deputy president Paul Selvaraj called for more funding in the 2024 federal budget to set up financial literacy programmes targeting young workers.

“We need to strengthen and expand programmes in the financial education network, so that young workers can access them and be empowered to manage their finances,” he said.

Goh and Selvaraj have also urged the government to increase oversight on BNPL schemes to avoid the system being exploited by credit providers and consumers alike.

The Consumer Credit Oversight Board (CCOB) told FMT that it is working to finalise the Consumer Credit Act (CCA), expected to be tabled in Parliament by the end of the year.

The act will regulate non-bank credit providers, including those that offer BNPL schemes, leasing and factoring services, as well as impaired loan buyers and debt collection agencies.

Presently, only BNPL schemes offered by banks are regulated.

The CCOB, led by the finance ministry and Securities Commission Malaysia, was set up in July 2021 to drive the enactment of the CCA.

Selvaraj suggested the CCOB work towards ensuring that commercial BNPL platforms are registered with the board and are transparent with consumers about their applicable fees, including interest rates and charges for overdue payment.

“All of these fees should be presented upfront because, very often, they are hidden until you are hit with the consequences,” he said.

Selvaraj added that BNPL platforms should also be allowed to perform credit assessments on potential consumers, saying this would minimise the risk of people adding to their debts by buying items they cannot actually afford. - FMT